Are They Good Things?

Jason Stipp: I'm Jason Stipp for Morningstar and welcome to the Friday Five.

In the spirit of Martha Stewart, we'll be asking this week, "is it a good thing?" about five pieces of news.

Joining me as always for the Friday Five is Morningstar markets editor, Jeremy Glaser.

Jeremy, thanks for helping me set the table on the Friday Five.

Jeremy Glaser: Jason, I'm always glad to help with any design details.

Stipp: So what do you have for the Friday Five this week?

Glaser: Well this week, we'll take a look at the IPO market, at GDP, at Tiffany, at a special election in New York, and finally at Martha Stewart herself.

Stipp: So we've seen a lot of IPOs recently, Jeremy. Some of them have been pretty eye-popping, but there are some other IPOs that are interesting to look at as well. Is the IPO market right now a good thing for investors?

Glaser: Well, I don't think it's necessarily a good think for investors to get into the IPO market. I think generally for individuals it's usually not a great time to get into stocks, but that didn't stop a lot of people from getting into LinkedIn last week. There is a lot of excitement about that stock. It rose very, very sharply even after it's range had been increased.

But this week we saw some IPOs that it weren't quite as successful and were a little bit more subdued. Spirit Airlines had to cut back the amount of money that they were going to raise and had to cut down their offering range. They actually priced below that range. And now granted to get me on Spirit Airlines or into Spirit Airlines stock, you are going to have to lower that price substantially, so that probably is why that happened there.

But other companies like Freescale, which is a semiconductor company, which has a solid business, really didn't have the kind of pop that they expect on the first day. It didn't really price as strong as they hoped.

So, I think it's good that the IPO market is certainly weighing different companies, isn't just treating everything the same, and getting really excited about any company no matter what. That certainly shows that there are some rationality still left in that market, but we're a little bit concerned about some of the ones certainly last week and just how incredible their short-term performance was.

Stipp: In economic news, we got the second read on first-quarter GDP. It did show growth; it seems like a good thing, but the market was disappointed, what's behind that?

Glaser: I think it was because people expected it to be revised upward. Instead of the 1.8% we got in the first reading, economists were expecting somewhere around 2.2%.They were hoping for some revisions across a few categories that would make the economy look like it's growing a little bit faster. 1.8% growth isn't horrible, but it certainly is not the kind of growth that we need to get back to full employment and to really get people back into the workplace.

One thing that was a little bit discouraging was that the consumer spending number was revised downward slightly. That's something that we keep a close eye on. I know Bob Johnson has talked a lot about how the consumer is really king, and certainly if they are showing signs of weakness, that could be problematic for the broader economy.

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Stipp: Although the consumer overall may be pulling back a little bit according to that data, one company reported this week, and they had some pretty good results. What was that?

Glaser: Looks like the high-end consumer, especially the one shopping at Tiffany, are doing really well, and they are excited about going out and buying silver and buying diamonds or whatever they want to get there.

Earnings were up 26% in the first quarter, with a 20% sales increase. The results were strong across all geographies. North America looked great. Asia, emerging markets all looked really nice.

It's a good sign for Tiffany. It's a company whose products are incredibly discretionary, and their clients are very high end.

So it shows that consumers who feel a little bit more comfortable in their position, those top-tier people, are out there spending. I think the real question is, are more mainstream consumers going to be out there, are they going to be spending money, and if so, when is that going to really start in earnest again.

Stipp: In political news, Jeremy, I think most people agree that controlling the deficit is a good thing, but the people who are trying to do it have been coming up against some pretty serious obstacles.

Glaser: It's something that we've been talking about for a long time now--this idea that at some point the deficit is going to have to get under control. And both the Republicans and Democrats have very different visions of how this should happen.

The Republicans, and notably Paul Ryan in the House, proposed a plan that would essentially turn Medicare into a voucher system and eliminate it as we know it today. And this was something that did not go over big with seniors, particularly in upstate New York and in New York 26, where a special election was held this week where a Democrat won that seat in a very heavily Republican area.

Certainly that shows just how powerful the Democrats' message about really changing some of these entitlement programs ... how voters really, in the abstract, want deficit control, but aren't necessarily keen to sign on to any individual proposals, no matter what they look like.

On the other side you have to remember that if the Democrats were to, say, propose raising taxes, as they have somewhat in order to bridge the deficit, the Republicans would be right there with attack ads about your taxes getting raised, and that's not going to do a lot for you electorally either.

So it just shows that it's really difficult to get this under control. So I think absolutely it's a good thing that we need to do it, but hopefully both sides will come together and come up with a compromise where they both give up, they both take some political hits, instead of just going back and forth with attack ads and not really moving the goal forward.

Stipp: Lastly, a-good-thing's namesake, Martha Stewart, her company had some news this week that could be a good thing actually for the company. What was behind that?

Glaser: Martha Stewart Omnimedia is going to put itself on the block and really explore strategic options, and this is a good think for the company. It's very difficult to have an entire enterprise that is solely based on one person, even if it is Martha Stewart, it's certainly difficult to have that much key-party risk, if you will, baked into the stock, that if Martha Stewart decides to retire, if she suddenly becomes less popular, it would become very difficult for the company to continue to do well. They are just so dependent on it.

So I think are putting those assets inside of a larger media conglomerate will probably allow them to grow even more. They will be able to get access to more capital, more resources to grow that part of the business particularly in emerging markets, an area where Martha Stewart wants to expand her presence, while also eliminating some of the risks of just having her as part of the company.

So I think it could be some time before we see bids emerge, before they decide what to do. I think the fact that the company is out there and making these decisions is a good move for shareholders, and hopefully they will be able to make the best of it.

Stipp: Jeremy, it's always a good thing to have you on the Friday Five. Thanks for joining me today.

Glaser: You are quite welcome Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.